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Crumbling Europe?

The worry du jour is the Iberian peninsula — Spain and Portugal. Greece is at least temporarily set aside. Watch for Ireland and Italy to join the list at some point.

The euro block may be solid at the core — France, Germany, the Netherlands — but it is vulnerable at the fringes. These countries are facing huge budget deficits and the difficulty of competing economically without devaluing their currency. If they had not joined the euro, the devaluations would have taken place some time ago. Now they cannot.

As yet, the talk of default is not really serious. Portuguese government bond spreads compared to German rates are up to 1.6 percentage points. But Portugal can still borrow at under 5 percent, which is not much of a rate if you really fear default.

But the euro core is facing a big decision. Assuming those countries will not let their brethren default, on what terms do they help out? How much political control do they demand? Cutting government spending during a recession is not exactly a route to popularity for a government. Nor is firing government workers or cutting salaries. There are no painless routes to increased competitiveness.

When the euro began, there were widespread forecasts it would eventually lead to something much closer to political union than Europe currently has. Some, who supported the euro, thought that was good because it would produce needed economic reforms. Others thought it was bad because it would damage national sovereignty. Both sides may yet be proved correct, but the process is unlikely to be pleasant.

Can the world economic recovery continue with a stumbling Europe? I think so, but today there is doubt, and share prices are down around the world.

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Economics doesn't have to be complicated. It is the study of our lives — our jobs, our homes, our families and the little decisions we face every day. Here at Economix, journalists and economists analyze the news and use economics as a framework for thinking about the world. We welcome feedback, at economix@nytimes.com.